Moving Crude by Railcar Stalls on the Track

Heightened Safety Concerns, Slow Permit Approval Hinder Some Firms' Efforts

Wall Street Journal
5 December 2013
By Alison Sider

Companies that thought they had found a relatively easy way to move crude from the booming oil fields of North Dakota to the West Coast are encountering obstacles.

Half a dozen companies are trying to build rail terminals on the coast of Washington state to receive trainloads of crude from the Bakken field in North Dakota. The oil would then be transferred to ships and barges that could carry it to refineries in the Pacific Northwest or south to California.

Analysts say regulatory hurdles make it difficult to build the necessary rail yards and tank farms in California, and it's more expensive to ship crude there. But getting a permit in Washington is proving more challenging than companies expected.

Targa Resources Partners LP recently called off plans to build a new crude-oil tank farm and rail yard at the Port of Tacoma, saying it was "unable to identify an economical path forward." The company, which didn't return requests for comment, applied earlier this year to get a permit from a regional clean-air agency that would allow it to ship crude by barge from its existing facility at the port, but that is still being reviewed.

And in the wake of this summer's train derailment in Quebec that killed 47 people, some groups are vowing to stop projects that would increase the number of oil trains rumbling through communities.

"The whole enterprise raises serious concerns about the heightened risk of transporting crude by rail," said Devorah Ancel, a staff attorney for the Sierra Club, an environmental advocacy group that has opposed some of the crude-by-rail projects at Washington ports.

Companies that want to transport crude by rail say the risks are minimal, and the rewards are great. Refiners have said shipping crude by rail from North Dakota to Washington is a bargain at as little as $10 a barrel, compared with $13 to $16 for a barrel of crude to travel by rail to California and $16 to ship a barrel to the East Coast.

Bakken oil production has soared in recent years but pipeline capacity hasn't kept pace, so energy companies are increasingly relying on railroads. Some refiners with plants in Washington, such as Phillips 66, BP PLC and Tesoro Corp. , have built or received permits to build the infrastructure they need to unload more crude from railcars.

But projects planned for some of the state's ports, where oil would be unloaded from trains, stored in tanks, and transferred to barges, have attracted criticism. A state hearing board recently overruled the City of Hoquiam, southwest of Seattle, which had issued permits to expand two terminals at the Port of Grays Harbor, east of Tacoma, to handle crude.

Westway Terminals, which already stores methanol at the port, wants to add tanks and a rail connection so its terminal can handle as much as 9.6 million barrels of crude a year. Imperium Renewables Inc., which makes biodiesel from vegetable oil at a plant at Grays Harbor, plans to expand so its terminal will be able to store and ship crude oil, jet fuel and gasoline.

The Quinault Indian Nation and conservation groups had challenged those permits; the state board said the companies need to provide more information about how a possible third terminal proposed by U.S. Development Group LLC, which is under consideration, would affect rail and marine traffic.

John Plaza, Imperium's CEO, said the company disagrees that "any proposed project at another site—anyone who can imagine doing something—provides the basis for denying our permit." Both Imperium and Westway say they will continue to push for permits, while opponents say they will challenge them.

The prospects for crude-by-rail expansions are even worse in California, where there is opposition to "introducing new oil or gas or anything that has a reputation for being unclean," said Sam Margolin, an analyst at Cowen & Co.

Valero Energy Corp. , the largest U.S. refiner, had hoped to receive permits by year-end to add rail unloading equipment at its refinery outside of San Francisco. But the company has said the project has been pushed back to the end of 2014 or the beginning of 2015 because of permitting delays.

Phillips 66 has applied for a permit to extend a rail connection at its Santa Maria refinery in southern California, and to construct a railcar unloading facility there so the plant can bring in more North American oil.

The company hopes to start construction on the project next year and having the rail connection up and running in 2015. Dennis Nuss, a spokesman for the company, said Phillips 66 is working with the county to get the permits it needs and to quell local concerns about safety.

In Washington, Tesoro has pinned its hopes to plans for a terminal that would be able to handle deliveries of as many as 280,000 barrels of crude oil a day at the Port of Vancouver. From there it is a short barge ride down to its refinery near San Francisco.

The company said it is optimistic that the $100 million terminal, a joint venture with logistics firm Savage Companies will get Washington Gov. Jay Inslee's approval and could be up and running late next year. Kelly Flint, general counsel for Savage, said the company is confident that it can usher the project through the state's one-year permitting process without delays.

Mr. Flint said the company didn't settle on Washington to avoid California regulations, but chose the Port of Vancouver because of its advantages. "It can service a number of refineries, it is the closest deep water port to the Midwest oil fields by rail," he said. "The rail infrastructure there is great."

Write to Alison Sider at